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Retirement Planning > Saving for Retirement

Americans Wrong on Half of Basic Finance Questions: TIAA

By Michael S. Fischer

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What You Need to Know

  • Respondents answered just 37% of questions about financial risk and uncertainty correctly, on average.
  • The survey found one in three respondents couldn’t cope with an unexpected $2,000 expense within a month’s time.
  • Financial challenges and lack of financial literacy are much more prevalent in the Black and Hispanic communities.

Lack of Basic Financial Knowhow Hurting Americans: TIAAOne in five U.S. adults say they can’t pay their bills in full and on time in a typical month, and one in three wouldn’t be able to cope with an unexpected $2,000 expense within a month’s time.

These were among the findings of the fifth annual Personal Finance Index, released Monday by the TIAA Institute and the Global Financial Literacy Excellence Center at the George Washington University School of Business.

This year’s P-Fin Index was based on a survey completed online in January by a sample of 3,035 U.S. adults.

The results indicate that many American adults are challenged to make appropriate financial decisions because of poor financial literacy.  Survey respondents answered only half of P-Fin Index questions correctly, on average, down two percentage points from the previous survey.

Twenty percent correctly answered only one-quarter or less of the index questions.

Financial literacy is lowest in the area of comprehending risk and uncertainty — a particularly serious problem in the current economic environment. Respondents answered just 37% of questions on the topic correctly, on average.

“This year’s Personal Finance Index reveals the precarious financial situations of many Americans, which have been exacerbated by the COVID-19 pandemic,” TIAA Institute senior economist Paul Yakoboski said in a statement. 

“But we have also seen Americans become increasingly motivated since the onset of COVID to improve their personal finances. Now is the time to focus on enhancing financial literacy as we look forward to life post-COVID.”

Issues Impacting People of Color

The P-Fin Index shows that financial challenges and lower levels of financial literacy are much more prevalent among the Black and Hispanic communities, which face structural inequities and long-standing institutional biases.

Black and Hispanic respondents each correctly answered about 40% of P-Fin Index questions correctly, on average, compared with 55% of white respondents.

Thirty-two percent of respondents in these two groups said they find it hard to make ends meet in a typical month, compared with 18% of white Americans. 

And 56% of Black Americans and 53% of Hispanics lack non-retirement savings sufficient to cover one month’s living expenses, versus 35% of white Americans. 

“Our data shows a direct link between financial literacy and financial well-being, and demonstrates how knowledge can help better position Americans against adverse economic conditions,” Annamaria Lusardi, university professor and academic director of GFLEC, said in the statement. 

“Just as we need to address institutional barriers, we must also break down barriers to financial well-being as part of the recovery path from COVID-19, and that includes greater access to financial literacy.”

P-Fin Index Questions

The P-Fin Index is designed to measure overall personal finance knowledge and analyze knowledge across areas of personal finance. It also identifies how financial literacy contributes to financial wellness. 

The index consists of 28 questions spanning eight functional areas:

  • Earning: determinants of wages and take-home pay.
  • Consuming: budgets and managing spending.
  • Saving: factors that maximize accumulations.
  • Investing: investment types, risk and return.
  • Borrowing/managing debt: relationship between loan features and repayments.
  • Insuring: types of coverage and how insurance works.
  • Comprehending risk: understanding uncertain financial outcomes.
  • Go-to information sources: recognizing appropriate sources and advice.

Michael S. Fischer

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